Restaurant Pricing - Some Food for Thought

Lessons In Marketing from a Favorite Restaurant

Article |
Thu, 03/01/2012 - 14:56

by: Peter Maniscalco

My wife and I recently visited one of our favorite local restaurants (a "bar & grill" as it's called). We've been loyal customers for several years. It's a nice place, always busy with good food, service, atmosphere and reasonable prices. The place is located in the suburbs and attracts a mixed customer base of blue- and white-collar patrons.
Sounds like a great place so far, right? Well, that was the case until about six months ago. What happened? Whether it was due to the change in economic conditions over the past few years or not, the bar and grill decided to make some changes. The food is still good and offers the same portion sizes. The atmosphere is still nice. But the grill extended the length of the bar. OK, so now they can seat several more customers at the bar. I see the improvement.
What we noticed even more was a complete change in staff. As a result, there has been a noticeable decline in the quality of service, plus (are you ready for this?), selective yet significant price increases!
Examples include a $2 increase for a salad, a $1 to $2 dollar increase for a cocktail, and a $1 to $2 dollar bump for a dessert. This all happened within a month or so of completing the bar "renovation."
We all know that commodity costs have increased in the last couple of years, but did the bar and grill inadvertently overlook, ignore or just plain screw up their value proposition? The staff, according to what we understand from an inside source, is much less costly than the previous crew. OK, so their labor costs have decreased. But, the additional costs incurred were for the extended bar, a one-time, fixed-cost investment!
My "Food for Thought?" The price increases are significant and there has been a decline in the quality of customer service. The quality of food and atmosphere are still solid. However, from what we've heard and observed, the level of business has dropped noticeably.
The key points missed by the owner are that a value proposition contains more than just the price element. Pricing is not solely a function of costs. To be successful, one must take into consideration the target market/customer base (i.e. segmentation).
Alternative solutions? Sure. Here are a few quick and obvious ones that the owner(s) could have taken:

The bar and grill could have avoided price increases at least a little longer. Don't let me, as a customer, get the impression that your price increases are simply a way to help you cover your remodeling investments(i.e. extending the length of the bar). Since there was an "overhaul" of the staff, which reduced its labor costs, by holding its prices the bar & grill could maintain its margins even in light of commodity cost increases. An option would have been to implement smaller and selective price increases if the owners felt compelled to do so.

The bar and grill could have implemented a less obvious price increase by downsizing its food and drink portions instead of the more noticeable price increases.

Instead of a mass overhaul of its staff, the owners could have taken a selective approach in terms of reducing its variable costs. For example, the owners could review their payroll and rebalance employees' hours and schedules based on labor expense differences.

Will we frequent this establishment as often? Probably not. I'm not sure where the value is now since we (and other patrons I'm sure) observed quite noticeable price increases, an obvious decline in customer service and a feeling that the restaurant lost sight of the customer. Maybe the bar and grill will recognize that its value proposition is not (or should not be) all about recovering its costs.

Peter Maniscalco is a contract senior pricing consultant for the Strategic Pricing Management Group, an international pricing management consulting firm. He is based in the Philadelphia area. His specialty is B2B and B2C product and services pricing for multi-industries. Peter can be reached at peterm09@yahoo.com or at 484-947-6450, as well as on LinkedIn.